Press
Tribune: It seems that Peru is one of the
countries in South America that learnt from
the experiences of the past. I would like
to know your opinion regarding the main
reforms that the President Alan García
has put in place to allow Peru to be on
the right track?

Mr. Cacic: Well
it is very simple, during the last 10 years
the reforms in Peru are turning away from
the directions in which we have taken economy
and politics. To be more precise, the fiscal
deficits, that were very common in some
Latin-American countries, have been eliminated
because it is clear that the governments
are very inefficient in handling these types
of assets. If the governments can't handle
them efficiently it is necessary to transfer
control of these assets to the private sector.

Therefore the privatization
didn't have an ideological basement it was
just the reaction caused by the inefficiencies
that were happening in the public sector
for the past 15 years. The debt was precisely
the result of a lot of spending that was
taking place in the government: a lot of
spending without any results. We were just
spending in things that were not productive,
and due to that fact we had a debt as there
was no money to finance that kind of spending.

What we have done
now is put an end to that, we are not going
to spend more. The government is not going
to spend more because most of the productive
activities in which they were involved now
are in the hands of the private sector.

Take for instance
inflation. It is the worst kind of tax that
you could put on the population; it is the
best way to make people poorer. We had to
stop it. The inflation was the way in which
we lived so many years, and that was one
of the most critical factors to produce
180 million poor in Latin America: inflation,
reduction in public deficit, privatizations,
foreign investment attraction Finally
we have decided that the best way to grow
and to eliminate poverty is through investment.

However, since
these are poor countries, our internal savings
are not very high and therefore we depend
a lot on foreign investments. Once that
you have decided that the foreign investment
is the way trough which we are going to
grow, it is necessary to provide these foreign
investors a legal framework that guarantees
and gives them stability. It's necessary
to produce a legal framework to protect
these investors, which is the main thing
that we have been doing here.

I think that for
president García it is very clear
that the way to over cut poverty is by growing.
The only way in which we can grow is with
foreign investments and therefore we have
to protect those investors, give them the
confidence that they can do their business
within a legal framework that is going to
be respected.

However, there
are still lots of things to do. Even with
the existing legal framework, the judiciary
is still a problem, maybe one of the biggest
problems that still need to be tackled.
We have to do something, sooner o later
to solve this problem that should guarantee
the outcome of a legal process in which
you may be involved somehow. The problem
today is that the perception most of the
people and the investors have of this country
is that when it comes to the judiciary,
the outcome of the process is difficult
to predict. There are a lot of cases in
which truth and laws are on your side but
you may lose the case, or in other cases
you don't have the grounds to win. This
is something that we have to solve. If you
ask me which are the two most important
problems that we have to solve in order
to give a better environment to the foreign
investors I will say first is the judiciary,
the second is the security. We need to fight
common violence here, especially in the
big cities.

Press Tribune:
Since 1994, Luz Del Sur is a good example
of a successful foreign investment in Peru.
In the following years, what are your ideas
and strategies to expand your activities
in Peru?

Mr. Cacic: Over
the last two years the growth that we have
experienced is an average growth of 8%,
which is huge. That growth is kind of a
problem. It is a nice problem to have, but
in order to be able to cope with this kind
of growth we have invest to reinforce the
network, to introduce more capacity of transformation,
more protection systems to our grid
Therefore we need to invest more this year,
so our investment plan is growing. This
year we are going to invest about 35 million
dollars in the reinforcement of the electrical
grid alone.
What we are forecasting is that growth is
going to be there for at least the next
two years and at similar rates, therefore
we will be forced to invest no less than
35 to 40 million dollars a year to be prepared
for such a kind of growth.

We are satisfied
in terms of results, actually as you said
we have been economically very successful.
This company is a blue chip in the local
stock exchange, the shareholders are very
happy with the results and with what we
have done with their investments. We are
particularly proud of having been able to
fulfill one of our goals, which was to take
energy to each house that is located in
our area of concession.

Now we have 100%
electrification which is one of our goals.
We cannot grow more, probably the only way
to grow is to get new concessions and expand,
so we will be considering that possibility
during this year and the next one too by
talking with the authorities.

Press Tribune:
What is your main objective for 2007?

Mr. Cacic: We are
today at the level of 790,000 clients so
we hope to reach 800,000 by the end of this
year. These 800,000 clients mean that we
are serving about 2.6 to 2.7 million people
which are our main objective. We want to
give our customer the best quality service
possible and take the merchandise that we
are commercializing with all kind of security
measures, all kind of safety mechanisms
to the houses, that's what we are working
on now, to increase our safety, not only
for our workers but also for our users.

Press Tribune:
If we look at your portfolio of customers,
most of your customers are residential customers.
Are you planning to provide services to
more industrial and commercial consumers?

Mr. Cacic: The
only reason why we are not growing in the
commercial or industrial consumers is because
we have a limitation in terms of supply
of energy; our group owns only a small generation
plant, which is too small for the size of
our concession. Most of the energy we have
to buy is coming from other generating companies
and it is very difficult for us to get all
the energy that we would like to have in
order to commercialize and to take this
energy to the industrial commercial consumers.

This is something
that we hope will be solved in the next
couple of years when probably new companies
are going to come into the market and therefore
the supply of energy is going to increase.
In an environment like that it would be
much easier to get that supply of energy
in order to grow in those areas where actually
the profits are better. However to be concentrated
in the regulated market for us is also a
very nice situation because it is a market
with a lot of stability, so we can predict
very accurately our income, our net income,
our profits, everything, because this market
is very stable. The other markets, the commercial
and industrial markets are more volatile.

That's why our
income and our profits are so predictable,
because 90% is concentrated in that part,
which is not bad.

Press Tribune:
The Camisea project is one of the largest
gas deposits in South America, how would
you describe the importance of this project
for Luz del Sur?

Mr. Cacic: Well
I think it is very important because in
Peru, the main gas consuming source is obviously
electrical generation. I don't think that
in Peru you would expect a lot of gas consumption
coming from the houses or from the people
for heating purposes, air conditioning,
or things like that. The weather is not
that bad here, so the domestic consumption
of gas is going to be very limited from
certain industries like cement, steel, and
some others, but the most important user
of gas are the companies that burn gas in
order to produce electricity therefore for
us the Camisea gas is very important, because
it has added one way to produce electricity
which was not there 3 or 4 years ago. Most
of our energy was coming from hydro electrical
power plants and thermal power plants that
were burning fossil fuel. Today gas is a
very interesting alternative because it
is cheaper, it is cleaner, and it is much
easier to construct a thermal power plant
with turbines that burn gas than to build
a hydro electrical power plant that will
take probably twice as much time as a thermal
power plant. The possibility to increase
the energy supply is much better now that
we have gas, it is very important for us.

Press Tribune:
There is a lack of electricity outside of
Lima, are you planning to provide electricity
outside of Lima?

Mr. Cacic: We are
still in the situation of coverage in terms
of electricity. Still 24 % of the population
doesn't have the electricity services. This
24% of the population are obviously out
of the areas that are close to the capital
city or the bigger cities in Peru. These
are rather rural areas; however 24% is a
lot of people without such a basic service.
We are still working to have a very structured
plan to develop those areas in which the
government is still working on and probably
the outcome of that process will cover this
24%. I think it is necessary to have some
kind of joint-venture between government
and private companies to reach this objective.
I also think that crossed subsidies between
the people concentrated in areas like Lima
would be very useful. People in Lima have
very good quality of electrical services
and could somehow pay a little bit more
in order to allow this other 24% of people
that belong to the base of the income pyramid
to have the same kind of service too. It
is not just the fact that you can have lights
at home, I think that electricity today
is the way through which you have access
to modernity, to comfort, to education,
to information, which is very important
to the people. There is a strategic importance
to deliver electricity to this 24%, which
would allow these people to have much better
information on what is going on in the country
how to vote in the next elections, what
are the candidates offering etc

Press Tribune:
Do you think that a public-private joint
partnership will be the best way to tackle
this problem?

Mr. Cacic: Yes,
I think so, because a private company alone
cannot do it because it is not profitable.
The government alone cannot do it because
it is too complicated for them, they just
do not have the expertise.

Press Tribune:
Now I would like to move on rumors that
Public Service Enterprise Group is about
to sell shares, is it something correct
to say or is too soon, as one of the shareholders
of Luz Del Sur, can you elaborate on that
or comment on the constitution of the group
?

Mr. Cacic: As you
know PSEG was in the process of a merger
with Exelon, this process lasted about 2
years and finally failed because there was
no possibility to reach an agreement between
these companies. Also due to the regulators
and due to that failure PSEG had to redesign
their business establishment. I think they
are still in that process because up to
yesterday there was no kind of announcement
regarding what was going to be the business
plan of PSEG. They are going to consider
their engine to grow as PSEG, what kind
of core business are they going to be in,
or what kind of business are they going
to leave, what areas are they going to concentrate
on the United States or are they going to
be operating on foreign markets. All these
kind of questions are still on the table
and it is necessary to wait for announcement
of what is the business plan of PSEG. For
the time being, we are continuing with the
business as usual, just waiting for the
news, which by the way should happen very
soon, because Wall Street is also waiting
for that kind of announcement.

Regarding our other
shareholder, Sempra Energy, they have a
clear strategy. They are concentrated in
the gas business so they are in the process
of canalizing the investments towards the
pipelines that they are building in California.
Probably they are considering the possibility
to buy gas from closer sources like Camisea
instead of bringing them from some other
parts of the world. I think they are very
well positioned in the markets like Chile
and Peru, they have a couple of nice assets
there, so I think they will have a more
clear picture of what they are going to
do in Peru and in every sense.

Press Tribune:
You have been appointed since 1999 as CEO
of Luz del Sur, How would you describe you
management style and how did you make your
success story since you started at Luz del
Sur?

Mr. Cacic: Basically
I would say that what I have been trying
to do all these years is to improve and
help the decision making process in all
the levels of the company so I think that
a company is successful only when the adding
of the good decision in all levels globally
are good. If you have a process in which
the decisions in the different levels of
the company are wrong the final result will
be obviously bad. In order to encourage
the right decision making process what I
have been doing is to try to give each decision
maker the most accurate information possible
so everything in this company within management
is open. Everybody will have access to the
information in such a way that wherever
they are working they would have the right
to know what is going on this area or on
that area. When you have the whole picture
I think your ability to make the correct
decisions that are aligned with general
objective is much better. That is what we
have been doing. The other thing is the
style of management here is very open so
we can discuss all kind of problems in an
open way and we do not have any kind of
complexes to make mistakes. We know mistakes
can be made, but what we also know for sure
is that once we have made a mistake we have
the ability to recognize it fast and correct
it immediately. The decision making process
has to continue so nobody can stop making
decisions because they think they can make
a wrong decision, there is no problem with
making a wrong decision, the thing is that
you have to realize it is wrong and correct
it, so that's the style I have been encouraging.
Telling my people to make decisions every
time they have to do, to act fast and to
check the results of their decisions, so
here we act very fast, also we are very
lucky because we have very talented people.

Press Tribune:
How would you characterize the working force
in Peru?

Mr. Cacic: Here
I would say 99% are Peruvians, Peruvians
are very hard working people, you don't
need to ask these people to stay and finish
their tasks, they will stay until they finish,
they don't care if its going to take hours,
they are very responsible, they are hardworking
people, I would say Peruvians have experienced
hard times before, and those hard times
have produced a sense of responsibility
on the people, so they know how it looks
like to be about to fall into hell, so now
everybody is trying to stay as far from
that situation as possible, and most of
the people know the only way of staying
away from that situation is to work in a
very responsible and productive way and
that's an example in this country. I am
very happy with the people.

It seems like now
in Peru people want to take an investment
approach, 75% of the Peruvians are taking
interest in the stock exchange, that's pretty
impressive. Besides that the stock exchange,
is shot proved. It is amazing; we also are
thinking we should do something about that.

Press Tribune:
What aspects of Peru and Luz del Sur would
you like to highlight for our audience?

Mr. Cacic: I would
just tell them that among emerging markets
and countries around the world, I think
the next successful story is Peru, and therefore
if they should take advantage of the kind
of a bullish market here that is going to
last for a long time. This is the moment
to invest, I would tell you that this is
a company where 80% is owned by foreign
investors and this is an example of what
they have to take into account is that our
shareholders have investments in Eastern
Europe, Middle East, India, China, Argentina,
Brazil, everywhere, and I am sure without
any doubt that they will say that the most
successful investment they have had is in
Peru.